Time and again when I am reviewing with potential clients about their businesses, they tell me they don't understand where the money is going, they ask why certain transactions cost more, and how to possibly track them. This is understandable. After all, the industry secretly prides itself on its ability to seemingly report everything to its customers all the while making them more confused than ever. To put this in perspective, 84% of businesses do not read their monthly merchant statement. Seriously, ...84%! People read their electric, gas, water, and phone bills, but not their bill for accepting credit cards.
Let's make it easy shall we? The riskier the transaction, the more expensive. Think of it in terms of underwriting. It costs a lot more to insure a Corvette than a Chevette. The same goes with a business's merchant account. The bigger the risk, the bigger the cost to cover it. If a customer comes in with a credit card, it swipes as it should, the planets align, God is in His Heaven, then boom: you get a better rate. If the customer's card won't swipe, then greater risks have entered in while your employee is hand-keying the card in. Congratulations, your rate just went up. It will go even higher at this point if they don't capture secondary data like billing zip codes and CV numbers (the 3 digits on the back unless it's an Amex who has four on the front). Your costs however, have not hit their ceiling. If the customer is using a Rewards card [see: Rewards Cards] such as a card that gives them sky miles, bonus points, or cash back; your rate will shoot straight into the stratosphere.
It's not all bad though. Your rates can also go down. If a customer comes in with a debit card, your rate drops. If they put in their PIN (personal identification number: in truth merely an electronic signature which is verifiable by the Issuing Bank), then the highest your company can pay is going to be about $0.87 and PIN-based debit is good up to a $500 purchase. Isn't that nice? This though is merely the other side of the coin: the safer the transaction, the less expensive.
These standards also apply not just to transaction type, but business type. In the credit card world, there are only three types of businesses: Retail, Hand-Keyed, and eCommerce. The way to determine what makes a business what is to look at how the customer pays the business. If they are face-to-face, it's Retail, over the phone it's Hand-Keyed, and online it's eCommerce. Businesses can be a combination of the three. Nowadays, many businesses do at least two if not all three options. However, I must be very clear here. In nine out of ten cases a business must have a separate merchant account for each way they accept credit cards or they are inviting trouble. This doesn't mean simply from fraud, but by possibly getting delisted by their merchant service provider. When in doubt ask your professional.
Most of my industry (which I apologize for, a lot) is kind of like speaking with a doctor, or your average computer geek (I use the term lovingly...). There is a lot of jargon that if you boil it down is mostly common sense. You, yes you, can understand it; if you make them take the time and avoid 'industry only' words when everyday language will more than suffice. Here is a good trick to know: Go to your merchant statement and look for the numbers of transactions by card type. An example of this would be: Visa Card Merit II ................236. This means that for that type of card, your business had 236 transactions. Once you have found that area, look for the card type with the single largest number of transactions. Ask your merchant professional if that is the safest card type, and what you can do to have lower cost cards make up the majority of your statement.
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